CEO's Notebook

A coffee bar trades ad dollars for training and stirs up frothy profits

Christian Kar used to trust in advertising to recruit customers for Espresso Connection, his 11-store chain of drive-through coffee bars based in Everett, Wash. Direct-mailing coupons worked well, he found, better than radio or newspaper ads. But then he had a revelation. "We had new customers at the [drive-up] window every day whether we were advertising or not, yet our overall sales weren't rising," Kar says. The problem wasn't getting new customers. It was keeping the ones he already had.

So Kar changed tactics. Starting three years ago, he beefed up employee training and compensation. And to pay for it, he slashed his marketing budget from about $100,000 a year to $30,000. The goal: make customer service Espresso Connection's number one priority. "We became less interested in getting people in at a discount to impress them and just concentrated on impressing them," he says.

Since then, daily revenues at most of the chain's stores have risen from about $800 to as much as $1,550, for a total of $3.1 million annually. And per-store profits have risen a remarkable 50%.

Training used to be inconsistent because new employees learned the ropes at the store where they worked. Now the company employs several part-time trainers and maintains a special hands-on practice facility, where new hires spend a week learning how to use the equipment and prepare drinks. Once the workers have the basics down, they undergo another 40 hours of on-the-job training at a store.

In addition, part of the money that Kar used to spend on advertising has gone to boost pay and benefits. He now pays entry-level workers $7.50 an hour, ahead of Washington state's minimum wage of $6.72, and he offers vacations, retirement benefits, and partially paid health benefits to most employees. "We decided to just pay what we need to pay to get the right people in, because there's a lot at stake on the upside," Kar says.

The first aim of training is to get new recruits up to speed, fast. "Our locations are really very small. Unless our staff really focuses on getting customers through there more efficiently, we quickly would hit a brick wall in terms of revenues," Kar says. During peak times, each store used to sell about $100 worth of the company's high-test coffee drinks every hour; that figure has now doubled. "The training has definitely helped," says Kar.

The second training goal is to teach employees specific techniques for improving customer service. When Kar began rethinking his company's training program, he realized that although his staff members were passing along the abstract concept of high-quality customer service to new employees, they weren't teaching the newbies how to provide it. Now recruits learn things like "Never close the window on a customer after a purchase, even if it's raining" and "On sunny days don't hide behind sunglasses."

"It's definitely a long-term investment," says Kar. But in a weak economy, Kar's focus on customer service makes sense, says T. Langdon Allen, a partner at Peppers and Rogers Group. "It's far more efficient to grow an existing customer than to lose that customer because of something you did and then have to go out and advertise for a new customer," he says.

The Training Payoff

How can a small-business owner develop an in-house training program that works?

Find out what your customers really want. Surveys work, and so do casual chats with customers, says T. Langdon Allen of Peppers and Rogers Group. At Espresso Connection, customers said they wanted a quick trip through the drive-through line as much as they wanted great coffee, so CEO Christian Kar's training program emphasizes efficiency.

Pick your trainer carefully. At first, Kar made a common mistake: he chose a highly capable employee who simply couldn't teach. The lesson, says Kar: You need someone who is "good at conveying enthusiasm for what we do."

Don't stick to just one teaching method. People learn in different ways, says Andrea Nierenberg, founder of the Nierenberg Group, a business-consulting firm. Some people want lots of information up front; others would rather ask questions as they try new things. A combination of hands-on training, handouts, and group discussion should do the trick, she says.

Break it up. Several short classes are better than one long one, Nierenberg advises. Although Kar concentrates his company's training into one week, each session lasts for only half a day.

CEO's Notebook

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